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We need an energy revolution in this country, and it doesn’t look like we’ll get it any time soon. Not to mention an energy policy from the government. The world is desperate for clean energy sources, and real, workable solutions seem far off. Meanwhile, big oil price spikes are not only possible but likely. Their effects could be shocking, and the auto industry is on the front line.

In the last Green Update we talked about some ways the energy problem was affecting the car industry. Let’s continue and then finish with a short discussion of what seems to lie ahead.

Aren’t the car producers taking all these supply-and-demand problems into account?
Well, yes, they are, and that’s one reason they went for the much stricter CAFE regs that were recently passed. They also know there’s a limit to the extent that many people in the U.S. can cut back on the miles they drive. Carmakers are working to improve the efficiency of internal combustion engines, but that takes you only so far.

High battery and development costs are keeping EVs out of the hands of all but a few committed buyers. Cars today are chock-full of “improvements” designed to attract buyers in a highly competitive global market. McKinsey says (see automotive sector sidebar—requires registration, but it’s free) that the industry

has responded in the past by pushing design improvements and productivity gains that make room for costly new content, including technology required for meeting regulatory standards. Here’s one example: if you adjust for inflation the cost of a 2001 Toyota Camry, you see that by 2010, the price of the car to US consumers had actually dropped by $2,500 in real terms—although the 2010 Camry was better equipped and 10 percent more fuel efficient.

Well, yes, but after ten years one would hope to see a much better than 10 percent fuel efficiency gain!

We need an energy revolution in this country, and it doesn’t look like we’ll get it any time soon. Not to mention an energy policy from the government. The world is desperate for clean energy sources, and real solutions seem far off. Yet big oil price spikes are not only possible but likely. Their effects could be shocking, and the auto industry is on the front line.

Above is a summary of what I’ve been reading over the last weeks about oil and renewables, supply and demand.

One of the interesting facts that emerged is that car buyers in Germany and the United States actually rank fuel economy outside the top ten attributes they consider when buying a car. This is from a valuable McKinsey study (subscription but free) on the likelihood of another oil shock in the next few years, one lasting for years.

To ease the shock, the authors suggest:

Governments would need to raise auto fuel efficiency standards further, and consumers would need to place greater emphasis on fuel economy when they bought new cars. Policy makers in several developing countries would need to abolish fuel subsidies so that consumers felt the real price of oil. Around the world, we’d need to see deeper reductions in the use of oil for heating, power generation, and chemical manufacturing. Some transport by ships and heavy trucks would need to start shifting toward more reliance on natural gas as a fuel.

Well, the chance of any or all of this happening soon is simply nil, in my view, unless people get really scared. We’ll follow up in Part 2 of this story with ways to scare them.